Taibbi writes: "If chutzpah were a crime, Hank Greenberg, American International Group's former chief, would be going away for a long, long time."

Hank Greenberg, being sworn in on Capitol Hill, told lawmakers 'AIG's business model did not fail - its management did.' (photo: AP)

Greenberg Should Be Shot Into Space for AIG Bailout Lawsuit

By Matt Taibbi, Rolling Stone

10 January 13

lot of people are wondering what to think about the news that the board of AIG is considering joining the lawsuit filed by former AIG head Maurice "Hank" Greenberg against the Fed and the U.S. government - a suit that one news outlet describes as charging the state with handing out an "insufficiently generous bailout."

If chutzpah were a crime, Hank Greenberg, American International Group's former chief, would be going away for a long, long time.

Long since driven out of AIG, Greenberg is waging a lawsuit claiming the U.S. hurt the firm's shareholders - including him - when the government rescued the insurance giant with the most humongous bailout of all time.

If you just read the headlines, the story that AIG is considering suing the government for bailing it out makes no sense at all. What could even be the basis for such a suit? One reader asked the question this way: "If a cop bursts into a motel room and stops you just as you're about to blow your head off with a shotgun, can you sue him? If the answer is yes, should I try it?"

Former bailout inspector Neil Barofsky put it this way, in an interview with Bloomberg: "The idea that AIG would have been better off by going bankrupt, for the shareholders is a very, very hard thing to sell, I think."

But here's the funny thing about the lawsuit filed against the government: It isn't all wrong. In fact, parts of it are quite on the mark.

The only problem is, the suit is being filed by maybe the biggest douchebag of all time, Hank Greenberg (and his company, Starr International), a man who has not only been proven to be corrupt and a fraud, but who perhaps more than anyone else was responsible for the galactic balance-sheet goat-fuck that caused AIG's implosion in the first place. If there is such a person as an innocent AIG shareholder who was harmed by the government's conduct, it sure as hell isn't Hank Greenberg.

In fact, since the collapse of AIG was perhaps the most important event in causing the financial crisis of 2008 to spiral out of control, you can put Hank Greenberg on the very short list of individuals who are most responsible for the economic catastrophe. A few weeks ago I put former Countrywide chief Angelo Mozilo, former Lehman head Dick Fuld and Greenberg's former subordinate Joe Cassano (the former head of AIG's Financial Products unit) on that list, but Greenberg should be right there riding the bus of shame with all of those excellent folks.

It's this fact, not the merits of the actual lawsuit, that make this news story so outrageous.

Like all narcissists, Greenberg is physically incapable of admitting any mistake he's ever made, and he's made plenty of them. Among other things, Greenberg in 2000 helped AIG artificially bolster its reserves by green-lighting a phony reinsurance transaction with a company called General Re (a subsidiary of Warren Buffett's Berkshire Hathaway) that puffed up AIG's loss reserves by about $500 million.

Even though a federal judge ruled that Greenberg was a conspirator in that case, and even though that scandal led to AIG in 2006 paying what at the time was the biggest settlement ever ($1.6 billion, paid to Eliot Spitzer's New York state regulators and George W. Bush's Justice Department and SEC), Greenberg has always denied responsibility, and his bumlicking minions in the financial press like Maria Bartiromo are still protesting his innocence long after everybody on Wall Street forgot about the case (that was nineteen billion-dollar scandals ago!).

Moreover, despite the fact that Greenberg personally settled for $15 million in another fraud case that led to a $2 billion accounting restatement by AIG, he's never accepted responsibility for any of his actions there, either. In fact, even after he paid the $15 million in that case, and even after AIG restated its balance sheet to the tune of $2 billion, Greenberg went out of his way to say the restatement was mostly "unnecessary" and that he had "no responsibility" for any fraud. That's just the kind of guy he is.

Why is it necessary to go over all of this ancient history? Because it was these Greenberg-instigated scandals that set in motion the events that led to AIG's collapse later on. When Greenberg was forced out on the heels of the reinsurance scandal, credit agencies downgraded AIG. This and subsequent downgrades are what eventually sank the firm.

How? Well, AIG, under Greenberg's watch, had entered into hundreds of billions of dollars of cosmically stupid credit default swap bets with all of the biggest banks in the world, essentially taking book for all of Wall Street, in many cases taking the wrong side of bets against the mortgage markets, among other things. Greenberg was dumb enough to allow his subordinate Joe Cassano to enter into these contracts, which were written in such a way that if AIG's credit rating were ever to fall, AIG would suddenly owe its customers billions in cash collateral.

When the ratings agencies started downgrading AIG because of anxiety over all of the investigations into the company's accounting, all of those collateral calls started coming due. Before you knew it, companies like Goldman were demanding more cash in collateral than AIG had, and when the company was finally bled dry, that's when the bailout took place.

The AIG bailout was not just a few guys from the Fed and some AIG board members hashing out a deal over lunch. It was hundreds of bankers and lawyers and accountants from many major law firms and big banks swarming all over AIG's books in search of enough cash to stave off the company's collapse. When that army of people couldn't find sufficient money in AIG's coffers, that's when the government stepped in, and this, too, was a major meeting of financial powers, with all the heads of the biggest banks and reams of government officials gathering at the New York Fed to hash out a deal.

The deal they ultimately came up with was genuinely outrageous - the state was to fork over more than $80 billion (it would eventually grow to $182 billion) and AIG's counterparties, like Goldman and Deutsche, would be paid off at 100 cents on the dollar for the bets they laid with the firm. Had AIG proceeded to a normal bankruptcy, companies like Goldman (which got $12 billion from the AIG bailout) would have recovered just a fraction of the money "owed" to them.

This, in part, is what Greenberg is suing about. Among other things, he's saying that the AIG bailout was really a bailout of companies like Goldman and Deutsche Bank, and that left to its own devices, it would have negotiated a better deal than the complete, 100-cents-on-the-dollar surrender that it "agreed" to under the guidance of the likes of Tim Geithner and Ben Bernanke.

Federal Judge Paul Engelmayer gave this dismissive description of Greenberg's suit in a ruling late last year:

To be sure, Starr's Amended Complaint paints a portrait of government treachery worthy of an Oliver Stone movie. Starr claims that, as the global financial system teetered on the brink of collapse, FRBNY seized control of AIG. Then, Starr claims, FRBNY, in an act of Napoleonic plunder, stole AIG's assets, re-distributing some to shore up other flagging financial institutions while keeping much of the residue for itself.

You know what's funny about this? IT'S TRUE!

The Fed, the U.S. Government, and the less-completely-fucked Wall Street powers like Goldman and Barclays and Citigroup absolutely did conspire to seize AIG and then use a monstrous mixture of AIG's assets and public money to keep themselves alive. In essence, AIG was the helpless fat guy in the lifeboat who got eaten when the rest of the survivors ran out of food.

In a vacuum, perhaps, there might be some sort of claim here, and there are ordinary people who worked for AIG who were probably harmed when the state decided not to force companies like Goldman to take even a 1 percent haircut on their CDS contracts with the firm. But Hank Greenberg, the guy who started all of this mess by monkeying with shady reinsurance deals and signing off on the bank's incredibly irresponsible bookmaking during the pre-crisis years, is not the guy to bring that claim.

Even Ben Bernanke was disgusted by the very idea of bailing out AIG, rewarding it for the vast greed and stupidity it displayed during the Greenberg years. Bernanke said the AIG rescue was "the single one that makes me the angriest," because the company had made "all kinds of unconscionable bets."

But it should also have made Bernanke sick to give companies like Goldman and Citigroup 100 cents on the dollar for laying bets with AIG. There are some who have argued that the government was right to make all of AIG's counterparties whole, because it upheld the sanctity of contracts or some such nonsense. This is bullshit, of course. When you enter into any deal with anyone, you have to weigh your risks, including the risk that your bookie, AIG, might implode thanks to its bad accounting and moronic management. AIG's counterparties failed to properly weigh those risks, and they got rewarded for their lack of diligence with the mother of all sweetheart bailout deals.

There are other aspects of the case that are comic in their outrageousness, but like all good comedy, they have elements of truth in them.

One of Greenberg's sour-puss claims is that the government denied AIG access to the Fed's discount window in July of 2008 - in other words, that the Fed didn't simply hand over a bunch of cash to AIG for free to allow it to escape its self-inflicted problems that way, instead of the government essentially taking over the company in exchange for a $182 billion rescue.

This would be ridiculous, were it not for the fact that the government did precisely that for other companies, including Goldman and Morgan Stanley, two investment banks which have been allowed to pose fictitiously as commercial banks for nearly half a decade now so that they could have access to the discount window.

Compared to the expert and loving attentions the government has lavished on the likes of Goldman and Morgan Stanley over the years, throwing money at these similarly irresponsible financial institutions essentially without any conditions at all (as Bloomberg reported, some of Goldman's secret Fed loans in 2008 came with interest rates as low as .01 percent) the take-it-or-take-it takeover/bailout of AIG comes off like a slap in the face, if getting $182 billion of the public's money can ever be seen that way.

Somebody probably has the right to complain about all of this. It just isn't Hank Greenberg. As for AIG, if its board seriously considers joining this suit, they should be tarred and feathered. When a $182 billion rescue isn't enough, you maybe, just maybe, have impossibly high expectations. This would be like Imelda Marcos walking out on Ferdie Bongbong because he didn't buy her enough shoes.

Is anything ever enough with these people?

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I don't think this entire financial disaster could be made any more visible - or explained any better. The issue remains: What is our government going to do about it - if anything at all? Legislation needs to be put in place to cover this kind of financial BS. And ... that legislation MUST have embedded within it some ver large, very sharp "teeth" - with jail terms mandatory and LONG.

Yes, we should lock up the banksters who robbed us blind and crashed the economy but this was all done with the "expert and loving attention" or our corrupt Congress. Matt says that Greenberg should be shot off into space, but the whole of Congress needs to be given a one way ticket to Mars so we can start over and get some ethical and moral people to really represent the people of this nation.

........Matt says that Greenberg should be shot off into space, but the whole of Congress needs to be given a one way ticket to Mars so we can start over and get some ethical and moral people to really represent the people of this nation.

I CERTAINLY agree with the sentiment expressed above, but DUDE ! Why mess up Mars ? It has been pretty unoffensive to US for quite a while now ! :)

........Matt says that Greenberg should be shot off into space, but the whole of Congress needs to be given a one way ticket to Mars so we can start over and get some ethical and moral people to really represent the people of this nation.

I CERTAINLY agree with the sentiment expressed above, but DUDE ! Why mess up Mars ? It has been pretty unoffensive to US for quite a while now ! :)

It is well documented that the US has been preemptively probing Mars for a good long time and has developed various contingency plans they can plug in to fit any scenario.

Right on,wrd! I love your posts. I fear there are too many NDA supporting, Fox News-watching airheads to kick the bums out, but we can dream. In the meantime, we can try our best to starve these tentacled monsters to death by transferring all our cash and loans to credit unions.

Well, relative to the potential payoff, it doesn't hurt to try. And money is money; it doesn't matter where it comes from. Drug dealers? Federal government? Interest payments wrung out of the world's poorest? It's all good!

Formerly, as a lowly registered stock broker, I was under the impression that investors took "risks" to accrue capital. To "guarantee" or "promise" a positive return was to commit fraud. Am I missing something here that begins with "f"?

everyone should read it to be able to analyze 25% of Americans in this country. Especially CEO's

This book truly DOES explain so many of these people we are dealing with right now in politics and in the corporations! They have no moral compass. They are narcissists and incapable of empathy or guilt.

The idea that AIG had no idea what was going on is ridiculous. This corrupt behavior did not just start a few years ago, not even in the last decade. Go back to the 1970s and 1980s. One of the more memorable cases, RTC v. Key Financial (2002), probably set the stage for the financial slaughter from 2003-2008.

This case opened the flood gates for investors to bolt. In 1989 investors sued the banks nearly for the same frauds that nearly 20 years later took down the economy. The case went on appeal in the 1990s and in 2002 was decided in favor of the investors. The banks needed new money to replace the old (hence the Ponzi). Instead of curtailing their bad habits the banksters ramped up their game.

From 2003-2008 the media was inundated with advertising for credit related products - far worse than tobacco because the banks sent their defective products right through the mail and into your home. AIG wasn't a stranger to the hype.

The entire financial industry knew what it was doing - it's just the Sheeple in Congress that looked the other way.

Yep. And since the ad money was so lovely, media didn't really question what the banks were doing.

Just like media now doesn't question whether cell phones MIGHT just REALLY be hazardous to health and not good to put next to one's head. The body of science around this is growing, not shrinking, but you won't hear about that, because those ad dollars are too important to possibly pass up.

It is my wish that the judge -- rather than throw-out such a baseless suit -- should order the whole lot of thieves to real jail time AND demand the reinstatement of the Glass-Steagall Act. What sensible legislators would ever ever have even considered its recission ?

Great reporting, as usual Matt. But, as always, the relevant question is: what the hell do "we" do about it? Does it make you all feel better to keep saying that the banksters should all go to jail? Will that actually put them in jail, where they belong? Folks, our entire economic system is both financially and, especially, MORALLY bankrupt. If we really cared, we would be organizing for a Constitutional Convention, to start all over. Otherwise, bleat away, sheeple, because your clever, righteous comments are worthless. Think about it.

You are absolutely correct in your analysis, but let's not "shoot the messenger", especially one as valuable as Taibbi !

Banksters have created a whole new LANGUAGE of obfuscation and redirection on the issue of financial matters, purposely designed to prevent the "average joe" from having ANY idea of what's going on.

THEN, they intimidate Congress, et al, with scare tactics based upon the ILLUSION that what they "DO" is SO arcane and impossible to understand that Nuclear Physics is mere child's play by comparison.

And yet, "what they do" behind all the bullshit language is still the same old tired Ponzi scheme or one of his near relatives. There is just no way that "STEALING" is really that complicated.

Matt is the ONLY voice that I KNOW of, who expertly "removes the mask" and reveals the truth in SUCH normal and easy-to-grasp English that even the average "joe" on the street has no difficulty seeing thru the B.S.

WELL DONE, MATT !

No, this guy is a National Treasure. OF COURSE he doesn't have all the answers. His JOB is to help us understand the QUESTIONS ! This he accomplishes with inimitable style and efficacy.

With no understanding of the QUESTIONS involved, we would ALL be left "totally in the dark" as Wall Street INTENDED !

BTW, my apologies to all practitioners and lovers of Nuclear Physics for mentioning their august and elegant Science in the same sentence with the subject of Wall Street "bankers"!

Some ARE organizing for a Constitutional Convention, many more for a Constitutional Amendment to GET MONEY OUT OF POLITICS. The movement is growing every day, as people are finally recognizing just how corrupt our government is and how much control the 1% exerts over it through campaign contributions, lobbying, and the revolving door.Checkout Move to Amend, Free Speech for People, United Republic, Rootstrikers, Public Citizen, Public Interest Research Group, Common Cause, or People for the American Way. Then join them, write your representatives, recruit others, blog, protest, tweet, write a letter to the editor. It's going to take a movement that rivals the Civil Rights Movement, the Anti-War Movement, or the Women's Rights Movement to get something done. But citizens have to ACT and SCREAM and persist if we truly want change. Don't let cynicism get in the way!

"Greedy is as greedy does." Isn't there room in Bernie Madoff's cell for Greenberg? Or send him, and Fuld, Mozilo, Thane, Lewis (of BofA),....and Wayne LaPierre, to Gitmo. There are no greater public enemies.

Y'all have heard about how Iceland dealt with this problem? It definitely wasn't on mainstream news because "they" don't want us to know about it, but can be found easily enough on internet. They actually did jail the bankers and fire the politicians. And also gave the money back to the people. And guess what? Their economy has leapt back into full recovery. It worked!

Is anything ever enough? No. That's why they need regulating. Did the Federal government require anything of these institutions in exchange for the billions of taxpayer $ in bailouts? No. In fact, the money some of them "paid back" is money of lesser value, since it is money that was printed to cover "Federal" debt. Money is a fiction: it requires that people believe in it in order to function as a medium of exchange. AIG and others are straining our ability to believe in our monetary system.

The short answer is "no." They are malignant narcissists who assign to themselves no role in their own downfall.

And the 47% are takers? Get real.

Big Money, Big Business, Big Energy, Big Insurance, Big Pharma and all the other "Bigs" are so far out of control that they need to be pulled up by the short hairs--often--until they get the message. We are DONE with this crap!

I would like to contact Matt Taibbi, as I have a very obvious "AIG rip-off story" after AIG had "swallowed" up all the honorable life insurance companies, one of which was mine-- Franklin Life Insurance Company. May I please have contact with Mr. Taibbi?Beverly Smith

Inside the insurance industry Mr. Greenberg has always had a reputation as a slimebag and dirty player. Greenberg took over AIG in 1962 and quickly “… shifted [AIG’s] focus from personal insurance to high-margin corporate coverage.” Under his rule AIG had many failings. But the worst was his and AIG’s deserved reputation for not fairly paying claims. With Greenberg’s AIG you got your nice written policy --- but often no payment of a legitimate claim until you actually fronted the money for an expensive legal case and went to court.

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